Monday, April 24, 2006

SALT LAKE CITY - A tiny oil company has snapped up leasing rights to a half-million acres in central Utah that it says could yield a billion barrels or more of oil.

Geologists are calling it a spectacular find - the largest onshore discovery in at least 30 years, located in a region of complex geology long abandoned for exploration by major oil companies. It's turning out to contain high-quality oil already commanding a premium at Salt Lake refineries.

With the secret out, industry players expect a bidding war to break out at the next Utah leasing auction, set for May 17 in Salt Lake City.

At today's prices the oil reserve could bring Utah $5.6 billion in royalties, state auditors conservatively estimate. Although the discovery is still playing out, the oil will take years to recover and some skeptics question the company's projections for a region yet to be fully surveyed.

"It's just very highly unlikely because the U.S. onshore has been picked clean, if you will," said Fadel Gheit, senior oil analyst at Oppenheimer & Co. in New York.

"That's like finding a wallet in the subway after all the cleaners went through it. It's possible, but very highly unlikely," he said.

Gov. Jon Huntsman said he was aware of the discovery "and we are tracking the progress with great interest. If the prospects prove to be true, it will be important that the resources are developed responsibly."

The discovery is playing out just outside Sigurd, Utah, more than 100 miles from any of Utah's other major oil fields and 45 miles from the nearest operating well.

The find, 130 miles south of Salt Lake City, was made by Wolverine Gas & Oil Corp., a privately held company with just 25 employees improbably located in Grand Rapids, Mich.

Wolverine's test well hit "pay" in late 2003, and by May 2004 it started producing from a single deposit estimated to contain 100-200 million barrels of oil.

Wolverine and government geologists said the company is looking at a total of 25 deposits that could contain 1 billion barrels of oil.

Those underground deposits are widely scattered over a crescent-shaped belt 100 miles long and up to 50 miles wide that contains all the geologic "right stuff" for oil pockets in folds of Jurassic Navajo sandstone, said Tom Chidsey, petroleum section chief for the Utah Geological Survey.

If Wolverine could produce 1 billion barrels at once, it could satisfy the nation's demand for about 45 days - less than the reserve that Congress may open at the Arctic National Wildlife Refuge, which by equally speculative estimates may contain 10 billion barrels of oil.

Oil companies began exploring central Utah more than 50 years ago without success, even though it's part of an oil-producing belt thrust ranging from Mexico to Alaska. The complex geology of central Utah produced only dry wells - 58 of them in the past 25 years.

In 1999, Wolverine bought Chevron's leasing rights and seismic data and started poking around itself, bouncing seismic waves more than 5,000 feet deep. With just two wells operating at full capacity now, Wolverine is pumping 1,500 barrels of oil a day from the ground and trucking it to Salt Lake refineries.

"The secret's out and we will face competition" at the next BLM auction, said Doug Strickland, a geologist for Wolverine. "We had a year and three months to ourselves."